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Model would reflect the number of conditions and add categories for mental health, substance use disorder, and chronic kidney disease.

The Centers for Medicare and Medicaid Services is proposing to phase-in changes to the way it calculates risk adjustment payment to Medicare Advantage plans. Starting in 2020, CMS will calculate payments using a blend of 50 percent of the risk adjustment model first used for payment in 2017 and 50 percent of the new risk adjustment model proposed, but not finalized, in the 2019 rate announcement.

The new model adds variables that count the number of conditions a beneficiary may have. It includes additional condition categories for mental health, substance use disorder, and chronic kidney disease. Building on the model being used for 2019, it includes technical updates such as calibrating the model with more recent data and selecting diagnoses with the same method used for encounter data.

WHY THIS MATTERSThe advance notice issued is Part I of the 2020 advance notice of methodological changes for Medicare Advantage capitation rates and Part D payment policies.Risk scores determine payment. The model is designed to reduce incentives for payers to enroll healthier members, by giving them reimbursement for higher-risk and costlier beneficiaries.

The 21st Century Cures Act requires CMS to make adjustments to the risk adjustment model to take into account the number of conditions an individual beneficiary may have, in addition to other factors in the existing model. Further, the 21st Century Cures Act requires that CMS fully phase in the required changes to the risk adjustment model by 2022.

In recent years, CMS began collecting encounter data from Medicare Advantage organizations.In 2016, CMS began using diagnoses from encounter data to calculate risk scores, by blending 10 percent of the encounter data-based risk scores with 90 percent of the risk-adjustment processing system, or RAPS-based risk scores.

In 2017, CMS continued to use a blend to calculate risk scores, by calculating risk scores with 25 percent encounter data and 75 percent RAPS. In 2018, it used 15 percent encounter data and 85 percent RAPS; and in 2019, 25 percent encounter data and 75 percent RAPS. The new model will determine risk scores by adding 50 percent of the score calculated from diagnoses from encounter data, RAPS inpatient diagnoses and fee-for-service diagnoses, with 50 percent of the risk score calculated with diagnoses from RAPS and fee-for-service diagnoses.